Manipulation Of Grain Futures Market By Speculators Hurts Both Farmers And Consumers, Missouri AG Tells Federal Agency

April 22, 2008 -- Jefferson City, Mo. - The influence on commodities markets by Wall Street speculators is hurting both Missouri farmers who aren't benefiting from higher grain prices and Missouri consumers who are paying more for food at the grocery store, Missouri Attorney General Jay Nixon said today. Nixon is urging the federal agency that regulates futures markets, the Commodity Futures Trading Commission (CFTC), to take action to protect consumers and farmers.

Wheat fields: Photo by Farol Tomson (CC)

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In a letter sent today to CFTC Chairman Walter Lukken, Nixon asked the CFTC to level the playing field for buyers and sellers of commodities by reducing the influence of futures speculators. Nixon asked the CFTC to work to restore price convergence, which occurs when the market price of a good at the time of delivery matches the price which the buyer and seller agreed to in their contract. He pointed out that speculators - for whom transportation and storage are not factors - have advantages that farmers and buyers do not, because they can pick the better of the market price and the contract price.

"Farmers are not getting the full benefit of their hard work, and consumers are experiencing sticker shock in the cereal aisle," Nixon said. "Much of this is because speculators - who are neither producers nor consumers - are manipulating prices, and they are the primary beneficiaries. Wall Street gambling on grain hasn't had a positive impact on Main Street, Missouri."

Many Missouri farmers sell their commodities on futures contracts, which require them to deliver a quantity of goods on a particular date. These contracts have a fixed price and protect farmers from fluctuations in market prices between planting time and harvest time. In recent years, however, pension funds, hedge funds, and other speculators have flooded commodities markets by buying futures contracts. Unlike other commodities buyers, speculators use these contracts as a way to game the market and do not actually receive the commodities they contract for.

"Farming already brings enough uncertainty without the introduction of outside players into the sensitive markets in which farmers sell their goods," said Nixon. "I urge the CFTC to step in and reduce the influence of speculators and give farmers the benefit of the bargained-for price on these contracts."

The CFTC is holding a roundtable discussion on this and other issues today, and Nixon's letter will be included in the agency's record. The CTFC was created by Congress in 1974 as an independent agency with the mandate to regulate commodity futures and option markets in the U.S.

Source: Missouri Attorney General